Why Corporate Officers Aren't Personally Liable for Guarantees Under NY Law
Given the protections afforded by the corporate veil, creditors (i.e., those who are owed money under existing agreements) are often frustrated when their bills go unpaid, as they suspect (or know) that the other side to the contract can hide behind these protections.
But what if the agreement seems to hold the corporate officers of the debtor personally liable for the corporate debts? Under New York law, even that may not be enough to pierce the veil and allow you to pursue (successfully) the corporate officer(s) in their individual capacit(ies).
"A corporate officer who executes a contract acting as an agent for a disclosed principal is not liable for a breach of the contract unless it clearly appears that he or she intended to bind himself or herself personally" (Stamina Prods., Inc. v Zintec USA, Inc., 90 AD3d 1021, 1022). There must be "clear and explicit evidence of the agent's intention to substitute or superadd his personal liability for, or to, that of his principal'" (Star Video Entertainment v J & I Video Distrib., 268 AD2d 423, 423-424, quoting Savoy Record Co. v Cardinal Export Corp., 15 NY2d 1, 4; see Yellow Book Sales & Distrib. Co., Inc. v Mantini, 85 AD3d 1019, 1021)."
Following that premise, New York's Appellate Division, Second Department recently reversed a Nassau County trial court's holding in favor of a creditor allowing them to hold an officer of a corporate debtor individually liable for the corporate debt, and instead dismissed the claim.
In fact, in this case, Ho Sports, Inc. v. Meridian Sports, Inc., the appellate court went to the unusual step of re-opening an earlier decision for the specific purpose of holding insufficient to create a personal guarantee the clause in the agreement stating "[a]ny married person who signs this guaranty hereby expressly agrees that recourse may be had against that person's separate property for all of that person's obligations under this guarantee."